PremiumReview of monetary sector in Azerbaijan (january-july 2016)

The bank reserves in Azerbaijan amounted to 2.17 billion manat as of Aug. 1, 2016, or 2.8 times more compared to late July 2015 (777.8 million manat), said the report.

The report said the extended monetary base in the country as of August 1, 2016, neared 8.62 billion manat, or 10.6 percent more compared to the same period 2015.

For comparison, as of late July 2015, this figure was 7.79 billion manat. The monetary base increased by 14.02 percent in Azerbaijan compared to early 2016 (7.56 billion manat).

As of August 1, 2016, the monetary base in manat amounted to 7.64 billion manat versus 7.47 billion manat as of August 1, 2015.

In the reporting period, the volume of money in circulation amounted to 6.44 billion manat, while this figure was 7.01 billion manat as of August 1, 2015.

The ratio of the mass of cash in circulation to the monetary base was 74.7 percent as of August 1, 2016, decreasing by 15.3 percent compared to late July 2015.

Azerbaijan’s loan market

The credit portfolio of Azerbaijani banks decreased by 9.3 percent up to 16.71 billion manat in July 2016.

Azerbaijani banks decreased lending to the economy by 17.2 percent compared to July 2015.

The banks issued over a half of loans worth 8.63 billion manat (51.7 percent) in the national currency, while the rest part – 8.07 billion manat (48.3 percent) in foreign currency.

This ratio reached 73 and 27 percent in early 2015. But the share of foreign currency loans began increasing, reaching 49.3 percent as of the year after the February devaluation of the manat.

However, the Supervisory Body has established a moratorium on the issuance of consumer loans in foreign currency to the individuals who do not have foreign exchange earnings and bank deposits since April 2016 and imposed a ban on mortgage loans in foreign currency since May.

Moreover, some banks have started to convert dollar-denominated loans into manat ones. As a result, the share of manat loans began to grow gradually. For comparison, some 50.9 percent of the loan portfolio of banks accounted for the loans in national currency in March 2016, 51.8 percent in April and 53.2 percent in May.

The volume of overdue bank loans decreased by 2.6 percent and reached 1.5 billion manat in Azerbaijan in July 2016 compared to June.

The share of the loans in the loan portfolio of banks was 8.98 percent compared to 8.4 percent as of late June.

As of August 1, 2016, the volume of short-term loans amounted to 3.56 billion manat (including overdue loans worth 506.9 million manat) decreasing by 12.3 percent for the month (a 2.3 percent decrease) and 19.3 percent per annum (a 12 percent growth).

The volume of long term loans decreased by 8.5 percent for the month and 15.6 percent up to 13.16 billion manat for the year (including 997.6 million manat of overdue loans).

The credit portfolio of the state banks in Azerbaijan reached 5.42 billion manat with the specific weight of 32.4 percent, while private banks issued loans worth around 10.78 billion manat with a specific weight of 64.5 percent. Some 4.37 billion manat of the amount account for the banks with foreign capital.

The remaining 3.1 percent accounted for the share of non-bank credit organizations which issued 511 million manat.

Some 37 banks, including two state-owned banks, 157 non-bank credit organizations, including 109 credit unions operated in Azerbaijan in July.

According to the report, the largest part of the total loan portfolio of banks – 37.3 percent (6.237 billion manat) accounts for the household lending.

According to the report, the trade and services sector (15.3 percent or 2.565 billion manat) ranked second, the construction and real estate sector (12.1 percent or 2.019 billion manat) ranked third in the total loan portfolio of banks.

The industry and production sector received 7.8 percent of the total volume of lending, which is 1.307 billion manat.

Some 6.9 percent (1.157 billion manat) accounted for the loans issued in transport and communication, 2.4 percent (400.1 million manat) - agriculture and processing, 2.2 percent (371.6 million manat) - energy, chemistry, and natural resources, 16 percent (2.674 billion manat) – the rest areas, the report said.

The loans given to the population in Azerbaijan's districts totaled 2.41 billion manat in July 2016, or 14.4 percent of the banks' total loan portfolio and 27.2 percent less than in the same period of 2015, the report said.

According to the report, the loans worth 14.31 billion manat were issued in Baku.

The loans in national currency (manat) amounted to 7.05 billion manat (49.3 percent).

For comparison, the loans amounting to 16.88 billion manat were issued in Baku in July 2015. Some 9.04 billion manat (53.6 percent) of that amount accounted for the loans in national currency.

The average interest rate on loans throughout the country was 11.3 percent in July 2016, while in Baku that index stood at 9.9 percent.

The lending volume in the Absheron economic district totaled 495.91 million manat at an average rate of 16.6 percent.

In other economic districts the lending index was as follows: Aran – 579.47 million manat at a rate of 22.7 percent, Mountainous Shirvan – 98.83 million manat at a rate of 20.4 percent, Ganja-Gazakh – 510.08 million manat at a rate of 19.7 percent, Guba-Khachmaz – 188.82 million manat at a rate of 19.6 percent, Lankaran – 221.31 million manat at a rate of 21.9 percent, Shaki-Zagatala – 165.94 million manat at a rate of 21.6 percent, the Upper Karabakh – 41.24 million manat at a rate of 18.1 percent, Kalbajar-Lachin – 1.17 million manat at a rate of 13.4 percent, Nakhchivan – 104.68 million manat at a rate of 12.5 percent.

Azerbaijani banks reduced the average interest rate on loans in national currency in July 2016 but increased the average interest rate in the foreign currency.

The average rate on loans issued in national currency amounted to 12.37 percent in July compared to 12.53 percent in June.

The average interest rate on loans reached 13.97 percent in July 2015.

The average rate on loans in freely convertible currency made up 10.30 percent in July 2016 compared to 9.81 percent in July 2016 and 12.73 percent in July 2015.

The legal entities received manat loans on an average rate of 8.15 percent in July compared to 8.50 percent in June 2016 and 9.87 percent in July 2015.

The average rate on bank lending to the corporate clients in freely convertible currency amounted to 6.25 percent in July 2016 compared to 5.5 percent in June and 8.83 percent in July 2015.

As of July 2016, the average rate on manat loans to physical entities amounted to 16.71 percent compared to 16.58 percent in June and 18.29 percent as of August 1, 2015.

The average rate on bank lending to the individual customers in foreign currency was 18.77 percent compared to 19.07 percent and 21.46 percent accordingly.

Mortgage lending

Azerbaijan’s state budget allocated 5.1 million manat in July 2016 through the line of the country’s Mortgage Fund (AMF) to finance the social mortgage against 5.3 million manat in July 2015, said the report.

The total volume of the loans’ refinancing issued by banks earlier was 1.2 million manat.

In the current year, the Azerbaijani state budget already provided 28.2 million manat for social mortgage. In general, 50 million manat are envisaged for these purposes in the state budget in 2016.

During July, as in the previous two months, Azerbaijani banks didn’t issue any residential mortgage loan, while for the same period of 2015, the volume of mortgage lending in July, June and May of 2016 totaled 65.2 million manat, 56.5 million manat and 47 million manat, respectively.

During the reporting period, placement of mortgage bonds wasn’t carried out, either. The suspension of mortgage lending is associated with the reorganization of the AMF, the fund will continue issuing loans after the approval of the relevant legal acts.

The average monthly amount of the loan issued by the authorized banks of the AMF amounted to 40,882 manat in July 2016 (this figure amounted to 40,697 manat in July 2015).

The average period for which the loan is issued is 280 months (279.7 months), the average annual interest rate is 6.7 percent (6.72 percent a year earlier), and the average amount of payments is 296.1 manat (297.5 manat).

In general, the AMF’s authorized credit organizations issued 17,997 mortgage loans worth more than 730.8 million manat from 2006 up till now.

According to the new mortgage loan issuance order, approved in June 2016, an ordinary mortgage loan will be issued only to Azerbaijani citizens and only in the national currency for a term from 3 years to 25 years, while preferential mortgage - up to 30 years to purchase a residential area, owned by the citizen. Interest rates on conventional mortgage must not exceed eight percent, while 4 percent per annum in preferential mortgage loan.

The maximum amount of the mortgage loan (including preferential) is determined by Azerbaijan Mortgage Fund JSC and must not exceed the cost of repaired housing with an average of 100 square meters in zone #7 in Baku. Annual interest rates on the loan are determined by the company’s Supervisory Board.

The amount of preferential mortgage loan must be 85 percent of the cost of purchased housing by the date of the loan issuance, except for cases when a borrower appeals to decrease the loan amount. The amount of conventional mortgage loan must not be less than 75 percent and more than 85 percent of the cost of purchased housing by the moment of the loan issuance, except for the cases when a borrower appeals to decrease the loan amount.

The monthly payment for a mortgage loan must not exceed 70 percent of a debtor's monthly income. The age of the borrower must not exceed the retirement age according to the legislation. An agreement on life insurance is required.

The family members of war victims, national heroes, internally displaced persons, civil servants with at least a three years' experience, teachers of secondary schools with at least a five-year service term, PhDs, doctors of science and those having special merits in sport as well as the military with at least a three-year service term can use the preferential conditions. Each family having the right to such a mortgage can only use the opportunity.

At present, the authorized banks of the Azerbaijan Mortgage Fund are 26 banks.

The participants of the mortgage market are 18 insurance companies [in total, 24 companies] and 16 appraisal organizations.

Azerbaijan’s banking sector

The economic cycles, seasonal factors and the attitude of investors, dictated by a variety of causes, impact on the dynamics of deposits.

As of early August, the total amount of deposits of physical and legal entities in the country's banks amounted to 23.25 billion manat, decreasing by 0.5 percent for the month.

The amount of deposits in the Azerbaijani national currency – manat has reached almost 4.65 billion manat in the country’s banks in July 2016, increasing by 0.5 percent for the month, the report said.

According to the report, as of early August, the amount of manat deposits has reached 20 percent compared to 19.8 percent as of early July.

Almost 56 percent of manat deposits accounted for demand deposits, the rest amount - term deposits, the report said.

According to the report, the deposits in freely convertible currency decreased by 0.75 percent up to 18.6 billion manat for the month (5.2 billion manat - demand deposits, 13.4 billion manat - term deposits).

The share of the deposits in freely convertible currency in the banks’ deposit base decreased from 80.8 percent to 80 percent for the month, the report said.

The foreign currency deposits were increasing after the devaluation in February 2015. For comparison: 51.7 percent of the banks' deposit base was formed in January 2015 through the deposits in freely convertible currency. However, as of 2015, that index reached 81.6 percent.

According to the report, the physical entities' deposits reached 7.84 billion manat in July 2016.

Most of the physical entities' deposits accounted for the ones in the foreign currency – 80.8 percent or 6.3 billion manat, the report said.

According to the report, the population’s deposits increased by 0.4 percent for the month, while 3.1 percent per annum. The total volume of the legal entities’ deposits in Azerbaijani banks reached 15.4 billion manat or by almost 1 percent less than in June and by 45.3 percent more than in late July 2015, the report said.

According to the report, as of early August 2016, the amount of the Azerbaijani financial organizations’ deposits reached 5.86 billion manat compared to 6.03 billion manat in June 2016 and 5.7 billion manat in July 2015.

The amount of the non-financial organizations’ deposits reached 9.55 billion manat compared to 9.52 billion manat in June 2016 and 4.94 billion manat in July 2015, the report said.

The population’s deposits, attracted to Azerbaijan’s banking system from the country’s districts (except for Baku), totaled 492.84 million manat in January-July 2016, that is, 6.3 percent of the total bank deposits, the report said.

The foreign currency savings of the residents of Azerbaijani districts amounted to 244.28 million manat or almost a half of all deposits in the banks in the districts in the reporting period.

As of July 2016, the average interest rate throughout the country and Baku reached 5.3 percent.

Thus, the Absheron economic region is still the leader on such indices as attracting the population’s deposits by the banks (152.59 million manat, average rate – 6 percent per annum).

During this period, the volume of deposits in the Aran economic region – 81.03 million manat at a rate of 4.6 percent, Mountainous Shirvan – 12.44 million manat at a rate of 6 percent, Ganja-Gazakh – 108.58 million manat at a rate 5.4 percent, Guba-Khachmaz – 33.88 million manat at a rate of 5.3 percent, Lankaran – 36.85 million manat - the rate of 6.4 percent, Sheki-Zagatala – 32.12 million manat - the rate of 4.2 percent, Upper Karabakh – 7.4 million manat – 3.4 percent, Kalbajar-Lachin – 0.2 million manat – 10.8 percent, Nakhchivan – 27.9 million manat – the average rate of 3 percent.

The average interest rate on deposits in Azerbaijani banks decreased in national and foreign currency in July 2016 compared to June 2016, the report said.

The average rate on bank deposits in manat made up 7.71 percent in July 2016 compared to 7.85 percent in June 2016 and 8.41 percent in July 2015.

The average rate on deposits in foreign currency amounted to 5.14 percent in July 2016 compared to 5.42 percent in June 2016 and 8.36 percent in July 2015.

The banks drew deposits of legal entities in manat in the amount of 5.63 percent per annum in July 2016 compared to 5.57 percent and 5 percent in June 2016 and July 2015 accordingly.

The funds on the accounts denominated in the freely convertible currency brought 3.47 percent to legal entities in July 2016, 3.5 percent in June 2016 and 4 percent in July 2015.

As of August 1, 2016, the average interest rate on deposits of physical entities in manat made up 8.84 percent compared to 9.04 percent as of July 1 and 9.67 percent as of August 1, 2015.

The interest rates on deposits of physical entities in foreign currency are as follows: 6.33 percent in July 2016, 6.73 percent in June 2016 and 9.39 percent in July 2015.

Financial activity of banks

Liabilities of the banks to the CBA increased by 2.97 times for the year and as of August 1, 2016, amounted to 7.09 billion manat, said the report.

The volume of liabilities increased by 31.8 percent compared to early 2016 and by 2.5 percent in July 2016.

For comparison: commercial banks’ liabilities to the CBA amounted to 2.39 billion manat in January-July 2015, 5.38 billion manat – in early 2016 and 6.92 billion manat – in late June 2016.

The growth of liabilities is related to the attraction of additional funds from the CBA to keep their liquidity after manat’s devaluation (manat’s rate decreased by almost 100 percent in 2015).

The volume of CBA’s foreign liabilities has remained unchanged – at the level of 700,000 manat since early 2015.

Official international reserves of the CBA decreased by almost twofold for the year – from $8.5 billion to $4.16 billion.

Net liabilities of the CBA to the government increased by 35.4 percent and totaled 6.23 billion manat during the reporting period compared to the same period of 2015.

For comparison: the volume of liabilities was 4.6 billion manat in January-July 2015.

Payment card market

The total turnover on payment cards via ATMs and POS-terminals in July 2016 amounted to 1.15 billion manat or by 2.7 percent more than in the same period of 2015, according to the report.

According to the report, the number of transactions with payment cards reached 7.03 million units decreasing by 4.5 percent for the year.

The number of transactions on debit cards equaled 6.17 million units totaling 1.01 billion manat during the reporting period.

Of the total number of transactions, 4.61 million transactions amounting to 884 million manat were implemented on debit cards via ATMs within the country, and around 414,000 transactions amounting to 68 million manat via POS-terminals.

As much as 853,000 transactions worth 148 million manat were made on credit cards in July 2016.

Of the total number of transactions on credit cards, 181,000 transactions worth 55 million manat were implemented via ATMs and there were 266,000 transactions worth 35 million manat via POS-terminals.

The number of payment cards in Azerbaijan decreased by 7.3 percent in July and reached up to 5.43 billion units compared to the same period of 2015.

Of the total number of cards, 4.69 million units accounted for debit cards, in particular, 2.5 million - social cards, 1.53 million - salary cards, 0.66 million - other cards. The number of credit cards was 744,000.

As of August 1, 2016, as many as 2,535 ATMs operated in the country of which 1,396 are located in Baku and 1,139 in other cities and districts of the country. The total number decreased by 150 units or 5.6 percent for the year compared to July 2015.

The number of POS-terminals amounted to 70,492 units of which 38,997 are installed in Baku and 30,922 units in other cities and districts as of late July 2016.

The number of POS-terminals has decreased by 7,467 units or 9.6 percent for the year.

Stock market

The total turnover of exchange transactions on all instruments at the Baku Stock Exchange reached 2.24 billion manat in January-July 2016, that is, 3.16 times less than in the same period of 2015.

The volume of the state securities market totaled 296.66 million manat (15.9 times growth per year), while the turnover of corporate securities market reached 67.58 million manat (22.3 times decrease).

The volume of derivatives market reached 1.87 billion manat (2.9 times decrease).

Comparative table on the trades results in the state and corporate sectors at the Baku Stock Exchange: